1.7

External influences on business

1.7 External influences on business

Types of external influences

Business competitors

Economic conditions

Environmental constraints

All these influences can affect the way a business operates.

1.7 External influences on business

Business competitors

Competitors may:

Raise/lower their prices

Introduce more advanced goods/better service

Move into the area

Offer additional facilities, eg open later.

If they gain customers, this increases their market share.

1.7 External influences on business

Competitive features

The price of the product/service

The quality of the goods/service or the reputation of the business

The availability of the goods/service

Technological developments

Additional benefits/services

Those chosen depend upon the product and the target customer market.

1.7 External influences on business

Customer profiles

Identify the key customer by:

Age

Gender

Income

Lifestyle

Place where they live

1.7 External influences on business

Location of competitors

May be:

Local

National

International

Depends upon product/service and market eg Microsoft/Dixons/local taxi firm.

1.7 External influences on business

Economic conditions

Interest rates

Price changes

Exchange rates

The Government aims to keep these stable to help business planning.

1.7 External influences on business

Interest rates

The interest rate is the cost of borrowing money.

Low interest rates:

Encourage customers to buy expensive goods

Mean lower repayments (for businesses and individuals)

1.7 External influences on business

Price changes

Price rises = inflation (measured by RPI)

Raw materials more expensive

So selling price increases (sales may fall)

People can’t afford goods so want wage rise

Business costs increase again

Selling price increases again . . .

1.7 External influences on business

Exchange rates

Strong pound

£1 = 2 euros

Good for British travelling abroad

Bad for business (exports expensive)

Good for consumers (foreign goods cheap)

Weak pound

£1 = 1 euro

Good for foreign tourists

Good for business (exports cheaper)

Bad for consumers (foreign goods dearer)

The exchange rate is the cost of foreign currency.

1.7 External influences on business

The role of the Government

Sets economic targets which are good for Britain

Raises taxes to slow down spending

Lowers taxes to encourage spending

The Bank of England’s monetary team:

Raises interest rates to slow down spending

Lowers interest rates to encourage spending

1.7 External influences on business

Environmental constraints

Laws and regulations on the environment affect business activities

Many organisations have environmental policies

Key areas are reducing pollution and wastage

1.7 External influences on business

Types of pollution

Air pollution – affects air quality

Noise pollution – unwanted noise which harms or irritates

Water pollution – through hazardous substances or pollutants

1.7 External influences on business

Waste

Reducing waste by:

Recycling and composting

Using less energy

Minimising wastage and deterioration

Plus:

Disposing of waste and dealing with special/hazardous waste according to the law.

1.7 External influences on business

Summary

External influences affect business activities

Some are unpredictable

External influences change regularly

Businesses must take action to cope

Best action will vary, depending upon the business